Mortgages

[EMAZ]

You can run mortgage calculator scenarios for free on sites such as bankrate…using your midpoint purchase price of $450k with 20% down ($90k) or 5% down ($22.5K). This does not account for your closing costs (an additional 2-3% of the loan amount as a baseline approximation; or $9k-$12k)…Assuming a 30 year fixed rate of 6.75% results in principal and interest (P&I) at $2335/$2773 respectively…this does not account for your property taxes, homeowners insurance, hoa, PMI (if less than 20%).

Also, keep in mind if going new build, landscaping, window treatments, ceiling fans, etc. will have to be accounted for as additional costs as well.

Not meant to discourage buying versus renting, but quite a significant upfront cash investment, and greater monthly expense over the $1900 in rent you mentioned paying to consider... $100k in a CD (20% down + closing costs) @ 5% right now is ~$420 a month + the added ~$900 a month in savings ($2335+$450 for T&I, hoa vs. $1900 in rent) is over $1300 a month (x12 is $15.6k a year, plus you’d still have your $100k).

Looking at a 5 year flat comparison: Renting-savings is $78k ahead…5 years in on your mortgage you’d have paid down $43k in principal (subtract out ~6% ($27k @$450k) of gross sale price to pay commissions to sell - assuming selling for what you bought it at… i.e. no appreciation/depreciation), $16k return.

 

[SDHNTR]

That's certainly a generous interpretation. I would say it's to make sure the bank can always get their money back if they have to sell it at foreclosure. Potato potahto.

Generous, perhaps, but also sound. It may not be popular, but I’m of the mindset that if you can’t afford the 20% down and a traditional mortgage, you can’t afford the home and should either shop for a less expensive one, or keep saving.

 

[SDHNTR]

Depends on the year but usually 15-17k to principal. My wife owns her own small business and it’s very cyclical so I like to have the flexibility in event need to pay for anything life throws my way. Like a new roof for a hail storm that just rolled through etc.

What is your current mortgage interest rate that makes you want to pay it off so aggressively?

 

[maxx075]

Generous, perhaps, but also sound. It may not be popular, but I’m of the mindset that if you can’t afford the 20% down and a traditional mortgage, you can’t afford the home and should either shop for a less expensive one, or keep saving.

Sorry, but this mindset pisses me off. How do you expect someone to save $100k cash when literally everything in life has inflated, except for salary?

My wife and I make about 170k combined, and I still can't make the savings for that.

 

[intunegp]

Haven't seen it mentioned directly yet, but make sure you're clear about whether you'll be paying property taxes, homeowners insurance, HOA, etc. into escrow with the lender as part of your mortgage or whether you'll be on the hook for that separately.

We bought just over a year ago, and about three months into our mortgage our payment went up $300/mo because of a huge property tax increase. I could be earning 4.6% on that $300/mo in my savings account if I didn't have to pay it monthly, now the lender gets to hold it and make interest on it instead.

 

[CorbLand]

Haven't seen it mentioned directly yet, but make sure you're clear about whether you'll be paying property taxes, homeowners insurance, HOA, etc. into escrow with the lender as part of your mortgage or whether you'll be on the hook for that separately.

We bought just over a year ago, and about three months into our mortgage our payment went up $300/mo because of a huge property tax increase. I could be earning 4.6% on that $300/mo in my savings account if I didn't have to pay it monthly, now the lender gets to hold it and make interest on it instead.

Escrow sucks. I wish I could hold it and just pay it myself as well.

 

[svivian]

Generous, perhaps, but also sound. It may not be popular, but I’m of the mindset that if you can’t afford the 20% down and a traditional mortgage, you can’t afford the home and should either shop for a less expensive one, or keep saving.

Perhaps, however those looking to buy in the last 5 years would disagree that this was sound advice. As stated by multiple who experienced it in this thread.

I think a better approach is capping your monthly mortgage payment under 30% of your total monthly income. Affording a home can be very doable even if you cant produce the 20% down right away.

 

[cowdisciple]

Generous, perhaps, but also sound. It may not be popular, but I’m of the mindset that if you can’t afford the 20% down and a traditional mortgage, you can’t afford the home and should either shop for a less expensive one, or keep saving.

I don't agree. If you can afford the mortgage payment, what else are you proving with the 20% down?

I certainly think that allocating 30% of your pretax income to housing payments (as is commonly recommended) is far too much, but the down payment itself is to protect the bank.

 

[grossklw]

Sorry, but this mindset pisses me off. How do you expect someone to save $100k cash when literally everything in life has inflated, except for salary?

My wife and I make about 170k combined, and I still can't make the savings for that.

I agree with this. My personal opinion is put less down, and keep the extra savings for a rainy day or different investments. It's not worth having 500$'s in a bank account and being one bad car fix away from being out of money. I'd rather pay the PMI at an additional 80-100 bucks/month and keep the additional savings accessible if needed.

As others have said FHA and USDA do have good loan programs, FHA is as little as 3.5% down; my opinion is conventional at 5% is an easier underwriting process and worth the 1.5% in extra points compared to FHA; I don't have any experience with the USDA loans.

 

[SDHNTR]

Sorry, but this mindset pisses me off. How do you expect someone to save $100k cash when literally everything in life has inflated, except for salary?

My wife and I make about 170k combined, and I still can't make the savings for that.

Sorry man, sometimes life isn’t fair. Capitalism can be harsh. Ask yourself, why hasn’t your salary increased? What can you do to change that? I know it’s easier said than done, but if your wages aren’t increasing the way you wish they would, do something about it. You are always going to be your own best advocate!

 

[MattB]

You can run mortgage calculator scenarios for free on sites such as bankrate…using your midpoint purchase price of $450k with 20% down ($90k) or 5% down ($22.5K). This does not account for your closing costs (an additional 2-3% of the loan amount as a baseline approximation; or $9k-$12k)…Assuming a 30 year fixed rate of 6.75% results in principal and interest (P&I) at $2335/$2773 respectively…this does not account for your property taxes, homeowners insurance, hoa, PMI (if less than 20%).

Also, keep in mind if going new build, landscaping, window treatments, ceiling fans, etc. will have to be accounted for as additional costs as well.

Not meant to discourage buying versus renting, but quite a significant upfront cash investment, and greater monthly expense over the $1900 in rent you mentioned paying to consider... $100k in a CD (20% down + closing costs) @ 5% right now is ~$420 a month + the added ~$900 a month in savings ($2335+$450 for T&I, hoa vs. $1900 in rent) is over $1300 a month (x12 is $15.6k a year, plus you’d still have your $100k).

Looking at a 5 year flat comparison: Renting-savings is $78k ahead…5 years in on your mortgage you’d have paid down $43k in principal (subtract out ~6% ($27k @$450k) of gross sale price to pay commissions to sell - assuming selling for what you bought it at… i.e. no appreciation/depreciation), $16k return.

You make a good point. In some markets, it makes way more sense to rent than to buy in terms of the monthly cost of occupancy. I live in San Jose, CA where real estate is crazy inflated, and per Zillow the monthly rent for our house would be just under 1/3 of the estimated monthly loan payment (guessing that assumes an 80% loan plus tax/insurance impounds).

I have a few friends who just can’t come up with 20% down to buy locally ($300K+), and I have suggested they rent here and take their savings and invest in an income-producing property elsewhere.

 

[CorbLand]

The best thing you can do when making any big purchase is to have honest conversation with yourself/spouse and run the numbers. Dont fudge them, be honest with everything. If it fits and works, do it. If it doesnt, dont.

 

[Pharmseller]

Agreed but I was quoting someone that said refinance when rates drop then pay off early.

Avoid a home with an HOA.

There’s good debt and bad debt, so sometimes paying off the good debt doesn’t make financial sense BUT…the peace of mind associated with no mortgage is amazing.

My wife and I work for different pharmaceutical companies. Our industry is very fluid, so we made the decision to pay down the mortgage as quickly as possible, even though our mortgage interest rate was lower than what our money could earn.

We missed out on a bit of interest income but no mortgage makes me a dangerous man.




P

 

[maxx075]

Sorry man, sometimes life isn’t fair. Capitalism can be harsh. Ask yourself, why hasn’t your salary increased? What can you do to change that? I know it’s easier said than done, but if your wages aren’t increasing the way you wish they would, do something about it. You are always going to be your own best advocate!

Do you know what the average salary in the US is? Do you know what the average home price is?

It's not a matter of my salary, it's a matter of how f'ed up the economy has gotten.
But hey, like you said, life ain't fair. At least you're doing well!

 

[Tjdeerslayer37]

Do you know what the average salary in the US is? Do you know what the average home price is?

It's not a matter of my salary, it's a matter of how f'ed up the economy has gotten.
But hey, like you said, life ain't fair. At least you're doing well!

the cheat code is to make more than the average and buy under the average. works out great!

 

[eddielasvegas]

Here's my advice and remember it's usually worth what you pay for it.

Also, not trying to lecture, but share my experiences as a Medicare eligible person who has not had a mortgage for over five years.

Put down the smallest amount possible to get into the house that you can if you have high confidence you can make the payments.

This does a numbers of things:

1) Keeps cash available if you need it for home repairs, remodels, life emergencies, etc.

2) You are paying back the mortgage with lower valued dollars. Inflation, and our debt based economy, is going nowhere anytime soon so why not pay them back with dollars that are losing 5-10% of its value every year? Just be sure you can make the monthly payment.

3) If housing prices crater like they did 2008, then a "strategic default" is a viable option which means you'll lose little since you put a small amount down. You put 20% down and that disappears in a SD scenario but a 3% or 5% DP loss is an easier pill to swallow.

4) If you home appreciates in value never, ever use it as an ATM unless somebody's life is at risk.


20-30 years ago I was of the mindset that you sign a contract like a mortgage, then by god you make the payments no matter what but the last 15-20 years has opened my eyes to do what's in the best interest of you and your family. Corporate America got a free pass for bad decisions of biblical proportions so why not you or me?


Good luck,


Eddie

 

[MattB]

Generous, perhaps, but also sound. It may not be popular, but I’m of the mindset that if you can’t afford the 20% down and a traditional mortgage, you can’t afford the home and should either shop for a less expensive one, or keep saving.

We only have to look back to 2008 to see how government intervention in the housing market and low-down/no-down residential mortgages are a bad idea and a risk to the financial system. I don’t begrudge people for taking advantage of them, but to your point IMO it is not a good thing they exist.

 

[intunegp]

Also, don't bank on any predictive advice from your lender. Mine was absolutely sure that within 12-18 months rates would be dropping and we'd refinance a percent or two lower than we signed at. That was 13 months ago and the outlook for his prediction is not good.

If we had signed a mortgage that we couldn't really afford, counting on that interest drop that hasn't come could have put us in a bad place when paired with the increased escrow payments due to tax increases.

 

[Wrench]

I took a 30year out on my place when I bought it. I paid it off in 7 years. Every nickel I had went to it. I had no stress through the rona mess and let me tell you.....that's priceless.

Find the crappy house in a nice hood and buy it. Throw every nickel you find at it. Don't worry if you roll a shitbox looking hooptie.....throw bux at the loan.

I was able to pay cash for my truck after saving a few years since I didn't have a mortgage payment.....it starts snowballing happiness to not be a slave to the lender.

 

[SDHNTR]

Do you know what the average salary in the US is? Do you know what the average home price is?

It's not a matter of my salary, it's a matter of how f'ed up the economy has gotten.
But hey, like you said, life ain't fair. At least you're doing well!

I’m well aware. Things are tough for a lot of people. But we are still masters of our own destiny.